The African Business Review May-Jun 2014 | Page 12

government emerging measures to resuscitate distress (von Hagen
and Ho, 2007). In line with the direct view, Demirgüc-Kunt and
Detragiache (1998) noted that banking crises evolve when at least
one of the following occur; the ratio of non-performing assets to
total assets in the banking system exceeded 10%, the cost of the
rescue operation was at least 2% of GDP, banking sector problems
resulted in a large-scale nationalization of banks or extensive bank
runs took place or emergency measures such as deposit freezes,
prolonged bank holidays, or generalized deposit guarantees were
enacted by the government in response to crisis. The event-based
view has been applied in various research studies.
However, the application of this view may be misguided, because
it is mainly based on information about government actions
undertaken in response to banking crises and bank distress
which may lingers on for quite some time before government
action is taken (Boyd et al., 2009). Also when the crises dates are
compared in various studies differences in the timing of crises
will be observed and different studies identify the onset of same
crisis by a difference of more than two years.

The second view on banking crises (indirect indicator)
focuses on an index of money market pressure that is; a weighted
average of the ratio of reserves to bank deposits and of changes
in short-term interest rates. The standard deviations of the
two variables are the weights (von-Hagen and Ho, 2007). Few
studies (Kibritciouglu, 2002; Singh, 2012) have employed this
view in determining banking crises. The indirect indicator has
advantages over the schemes based on expert judgments (direct
indicators) but there is the possibility that the indirect-indicator
schemes pick up business-cycle effects instead of signs of banking
crises (Kaehler, 2010). Many of the studies that are conducted
in developed economies have shown that inflation tends to fall
due to crises. This is anchored on the reasons that many of these
countries have not fully recovered from the crisis, and therefore
need some level of inflation to propel the economy or that the
inflation expectations have been well-anchored to mediate
the possible consequences. However, in economies where the
monetary authorities may not have the req Z\